TY - JOUR
AU - Wang,J. Christina
AU - Basu,Susanto
AU - Fernald,John G.
TI - A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output
JF - National Bureau of Economic Research Working Paper Series
VL - No. 14616
PY - 2008
Y2 - December 2008
DO - 10.3386/w14616
UR - http://www.nber.org/papers/w14616
L1 - http://www.nber.org/papers/w14616.pdf
N1 - Author contact info:
J. Christina Wang
Federal Reserve Bank of Boston
Research Dept, T-8
600 Atlantic Avenue
Boston, Massachusetts 02210
E-Mail: Christina.Wang@bos.frb.org
Susanto Basu
Department of Economics
Boston College
140 Commonwealth Avenue
Chestnut Hill, MA 02467
Tel: 617/552-2182
Fax: 617/552-2308
E-Mail: susanto.basu@bc.edu
John Fernald
Federal Reserve Bank of San Francisco
Economic Research Department
Mailstop 1130
101 Market Street, 11th floor
San Francisco, CA 94105
Tel: 415-974-2135
Fax: 815-642-0515
E-Mail: fernaldjg@gmail.com
M1 - published as J. Christina Wang, Susanto Basu, John G. Fernald. "A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output," in W. Erwin Diewert, John S. Greenlees and Charles R. Hulten, editors, "Price Index Concepts and Measurement" University of Chicago Press (2009)
AB - This paper addresses the proper measurement of financial service output that is not priced explicitly. It shows how to impute nominal service output from financial intermediaries' interest income, and how to construct price indices for those financial services. We model financial intermediaries as providers of financial services which resolve asymmetric information between borrowers and lenders. We embed these intermediaries in a dynamic, stochastic, general-equilibrium model where assets are priced competitively according to their systematic risk, as in the standard consumption-based capital-asset-pricing model. In this environment, we show that it is critical to take risk into account in order to measure financial output accurately. We also show that even using a risk-adjusted reference rate does not solve all the problems associated with measuring nominal financial service output. Our model allows us to address important outstanding questions in output and productivity measurement for financial firms, such as: (1) What are the correct "reference rates" to use in calculating bank output? In particular, should they take account of risk? (2) If reference rates need to be risk-adjusted, should they be ex ante or ex post rates of return? (3) What is the right price deflator for the output of financial firms? Is it just the general price index? (4) When--if ever--should we count capital gains of financial firms as part of financial service output?
ER -